Common myths about media trading

Believe it or not, corporate trade has been around for over 50 years. And throughout those five decades, there have been good and bad purveyors of trade and, on the other side, well qualified and not so well-qualified clients trying to take advantage of this potentially powerful financial service. Like any industry, poor vendors and ill-fit clients make for a unsatisfactory result. Those situations caused many people to think that corporate trade itself didn’t create value.

Built from those situations, several myths about corporate trade have arisen that often prevent people from considering what can truly benefit their company’s bottom line. Here are some we’d like to debunk:

  1. Media placed by a trading company must in some way be compromised.
    At first this makes sense since the trading company is somehow acquiring media at a lower cost than their client. And we all know that if the cost is less, something must somehow be compromised, right? No, actually. What most people don’t realize is that the media acquired by qualified trading companies is accessed from a little-known marketplace established by the media vendors so that the stations, networks and publishers can pay for things they need with their time and space rather than with dollars.

    A station may need some new audio equipment. They would prefer to pay using their airtime or space rather than with cash but the manufacturer likely has no need for all that air time. Here is the role for the trading company who can pay the manufacturer cash for the equipment and take airtime or ad space from the media vendor in exchange.In the end, the cash investment made by the trading company returns a greater amount of media than they would have received had they just paid the station, network or publisher with cash.

    And here’s the critical point: The media received in exchange for the equipment is the same quality as media the client would have routinely bought with cash.The station doesn’t expect second rate audio equipment of other good or service, and neither is the trading company willing to take anything other than first-quality media that won’t be pre-empted by the spots bought by clients in the traditional way. And since the station was able to reduce its cost of equipment by paying with air time at its internal cost and the trading company owns the time at a reduced cost through its investment, each party gains. And you, the client, are now able to pay for a portion of your normal first-quality media using excess inventory, surplus real estate or other unwanted asset.

  2. By selling our inventory to a trading company, our distribution will be compromised. You work hard to control the distribution and pricing of your products. So when a trading company requests to buy and resell your products, your natural reaction is believe that your product will start showing up in all the wrong places at a deeply discounted price. A reputable trading company like Evergreen Trading will, at the start of the process, discuss the nature of your inventory and where it can and/or cannot be sold. While the trading company will want to sell the product for the highest possible price – which will increase your return on the transaction – they will also need to know how to stay clear of your current retail and online customers so that the transaction causes no disruptions in the marketplace.

    Often, this approval process takes the form of a list of account restrictions where the trading company will request the names of client of accounts to whom the inventory cannot be sold. Perhaps the trading company will create their own list of prospective domestic and international accounts for the client to review and approve. Either way, a company like Evergreen Trading will work with you to create a distribution plan that distributes the inventory in a non-disruptive manner. That distribution plan will be contractually guaranteed and may also contain assurances stipulating that the buyer will sell it direct and not wholesale the product, or that packaging or tags will be altered to eliminate reference to the manufacturer in order to avoid product returns.

  3. The higher value the trading company is claiming to pay is illusive. The value of trade can be illusive if the trade is not properly structured just like repairs on your car may not remedy the problem if you use a poor mechanic.We’ve stated elsewhere that the trade professionals with whom you work are the key in determining the value you receive from corporate trade. It comes down to their skill, integrity and experience, and to the quality of the media platform they’ve created.

    That said, the value created through a properly structured corporate trade transaction is measurably real – and is easily measured. It is simply the difference between the fair market value value of the inventory, real estate, or other asset sold to the trading company and the cash by which your media expense is lowered.Your media expense will be lowered because you will be paying for a portion of it using your asset valued much higher than market value. Your benchmark for measuring the value of trade is always the fair market value of the asset.For example, assume your dark retail store could be sold for $350,000 in cash today, and because the trading company paid you for it with a $500,00 advertising credit that reduced your advertising cash outlay by $500,000, you gained $150,000 through the arrangement. This gain is made real only by a true $500,000 media expense reduction. To insure that reduction, the trading company must benchmark their media rates and commercial terms to your planned or historic rates and terms. If an apples to apples comparison exists between the cash rates you pay and those charged you by the trading company, the value from the trade is real and measurable.